U.S. institutional investment plan sponsors lost 9% at the median in the third quarter of 2011, according to Northern Trust’s Universe database. The loss ends a streak of four consecutive quarters with positive results.
The Northern Trust Universe represents the performance of about 300 large institutional investment plans, with a combined asset value of approximately $641.1 billion.
“Institutional plan sponsors endured another tough third quarter, with weak equity returns driving the losses,” said William Frieske, senior performance consultant, Northern Trust Investment Risk & Analytical Services. “Based on observations over the last 15 years, our Universe database has shown that the third quarter has historically been the lowest performing quarter during the calendar year. For example, public funds have had an average median loss of 0.7% in the third quarter over the last 15 years. That compares to average gains of almost 5% in the fourth quarter, 0.8% in the first quarter and 3.1% in the second quarter for those funds during the same respective period.”
In 2011, corporate ERISA pension plans had the strongest Q3 performance of all segments, with a loss of 7.5% at the median. Corporate ERISA plans benefited from higher allocations to fixed income than the public funds and foundations and endowments segments, which tallied losses of 9% each at the median.
Fixed income programs in the Northern Trust Universe gained 2.1% in the third quarter while both U.S. and non-U.S. equities posted steep losses. The median U.S. equity program was down 16.2% for the quarter, while international equity programs lost almost 20%. U.S. equity program managers trailed the Russell 3000 Index of U.S. stocks by about 90 basis points in the third quarter, as active managers primarily struggled to outperform their respective benchmarks. In alternative asset classes, real estate was up 0.6% and private equity gained 3.2% while hedge funds lost 2.7% for the three months ending Sept. 30.
“Even though the third quarter was challenging, institutional plan sponsors managed to keep pace with their assigned performance benchmarks,” Frieske said. “The median plan sponsor return was four basis points better than its benchmark for the quarter, indicating that active management across asset classes helped these plans outperform the markets somewhat. Over longer time periods plan sponsors have experienced about 45 basis points of excess performance relative to their assigned benchmarks.”